MNI DATA IMPACT: UK August CPI At 5-Year Low On Eat Out Scheme

UK consumer price inflation slumped to its lowest level since mid 2015, with government schemes to help the restaurant sector reducing the prices paid by diners, data released on Wednesday by the Office for National Statistics showed.

Consumer price inflation declined to an annual rate of 0.2%, from 1.0% in July, slightly above analysts' expectations, but still way below the Bank of England's 2.0% target. That's the 13th straight month below target, and could make for interesting discussions when the Monetary Policy Committee meets later today.

The government's reduction in value-added-tax on restaurant meals and the Eat-Out-To-Help-Out scheme accounted for 0.54 percentage points of the fall in CPI. While prices as presented in menus remained steady (or increased in some cases), National Statisticians adjusted the data to reflect a discount of up to £10 on the price of a meal during certain days in the month of August. Restaurant prices declined by an annual rate of 2.6%, the first fall in a series dating back to 1989.

Inflation would have remained well below target, even after accounting for the effect of the government measures to support the leisure sector. Excluding food and energy, core CPI declined to an annual rate of 0.9%, the lowest since June of 2015.

For the first time ever, airfares declined by 1.0%, compared to a 22.4% increase in 2019, subtracting 0.31 percentage points from the change in CPI. Clothing and footwear prices accounted for another 0.09 percentage points of the decline.

NORMALITY RETURNS

Only eight of the regular items in the CPI basket were unavailable in August (down from 90 back in April), leaving the ONS to cease the publication of an alternative series excluding such items.

The ONS will not update its other alternative series, which re-weights the basket to better reflect spending patterns during lockdown, until later in the year. Many private economists have suggested that official measures of CPI may significantly under-estimate the level of inflation. According to the alternative ONS series, inflation was 0.1% higher than the headline rate in May and June and 0.1% lower in April.

Intermediate prices pressures remain muted, with softness in petroleum products and imported crude oil dampening pipeline inflation. Output price inflation declined by 0.9%, the fifth straight annual decline. Input prices declined by 5.8% over the same period of last year. Core input price inflation was unchanged on an annual basis, the weakest showing since November of 2015.